Monday, June 28, 2010

Whether you have a cable, phone, or credit-card contract, you're going to get overcharged unless you're vigilant.

I wish I could say that you're being nickel-and-dimed to death on these abuses, but we're talking hundreds or thousands of dollars of unnecessary fees.

Bob Sullivan, author of Stop Getting Ripped Off (Ballantine, 2009), which chronicles how companies use hidden contract language, calls pricing schemes "the death of the price tag" -- where companies play games to get you to ultimately pay more than you originally were told.

Here are some common snares that catch millions:

1. Cell Phone Pricing Plans. Are you able to intelligently compare one company to another? Probably not. They're designed to confuse you. "There are a million permutations for cell phone pricing," Sullivan notes.

It's hard to tell which is best unless you keep track of how much you use your phone. Often times, the best plan is prepaid. A related ruse is to only offer the best smartphones with two-year contracts. Only the cheaper phones allow you to save money.

2. Credit Card Fees. Banks will do anything to layer on fees. If you don't pay on time, go over your limit, or use cash advances, you'll pay dearly. The best use of a credit card is to pay within the grace period. If you have trouble keeping track of the due date, use auto-billing that's linked to your checking account.

Also look for cards that pay you back. Because I never carry a balance from month to month, my cards reward me with college savings and airline miles.

3. Auto Dealer Financing. This is the last step of buying a car. You're ushered into the finance office and offered "great" deals on a loan or are pressured to buy a warranty or other extras that are pure profit for the dealer.

Get pre-approved for financing before you walk into the dealer. Some of the best deals are from credit unions. And be ready to walk if you're mistreated. By the way, the new financial reform law offers no protection in this area.

4. Cell Phone Upgrade Fees. You're excited when your phone company allows you to upgrade because you can get a unit with more features, but ask if they'll hit you with an upgrade fee, which can range from $18 to $36. You can always refuse to pay it or jump to another company that doesn't charge.

5. Excess Minutes Charges. If you exceed the number of minutes allotted in your cell phone plan, you'll be charged at a rate 600% to 800% higher than the contracted rate. Make sure you give yourself some fudge room when you select your plan. Some half of cell phone users say they don't use all of their minutes every month, so choose your plan carefully.

6. Insurance Isn't an Investment. Agents love to sell policies and variable annuities that are indexed to the stock market or carry guarantees. These plans are among the most expensive available and pay agents fat commissions. If you want a pure investment, select an index mutual fund or exchange-traded fund. If you want pure insurance, select level-premium, no-load term-life or immediate annuity.

7. 401(k) Fees. These are among the most-hidden expenses. You'll have to ask your employer to find out how much fund managers and middlemen are getting paid. It's important because the "annual expense ratio" is deducted from your retirement account. Stock-index funds shouldn't cost more than 0.50% annually; bond funds shouldn't charge more than 0.25%.

8. Low Credit Score Costs You. If you have a low credit score, you'll be charged higher loan rates. Always check your score before you apply for credit. You have a right to see your report and make any corrections. You can also raise your score by not spending more than half of your credit limit on credit cards.

9. Cable TV Charges. Cable companies want to sell you everything -- phone, TV, Internet, and movies. They will offer you all kinds of incentives to get you into the largest bundle possible, but you should set a budget for how much you're willing to pay before you sign a contract. Also keep in mind that movies are free at your local library.

10. Negotiate! I've lost track of the number of times my credit card company has tried to slap on a late fee or finance charge when they knew full well my payment came in on time. I just call them and tell them to remove the charge or I'll move my business elsewhere. It works nearly every time.

John F. Wasik is author of "The Cul-de-Sac Syndrome: Turning Around the Unsustainable American Dream".

Tuesday, June 22, 2010

Right now, your motivation should be to repair your household balance sheet by saving. But you may have to borrow to get back on track.

I was shopping around for a decent rate for my daughter's savings account last week. Slim pickings.

I'd have a better chance of getting a deal on a car than finding a decent savings yield. You're lucky to find something yielding 1% now.

When you subtract taxes and inflation, your real return is negative on most saving vehicles these days. Here's a sampling of last week's average savings yields, courtesy of www.bankrate.com:

* Money-Market Account: 0.78%

* Checking Account with Interest: 0.56%

* One-Year CD: 1.37%

You're almost a chump for even trying to save money, although saving is what we need to do after the worst financial crisis since the Great Depression.

It's palpable anger time. Why should we give the banks our hard-earned money -- after a massive $12 trillion bailout -- when they reward us with such awful savings rates? After all, the banks are paying almost nothing for the money they borrow from the Federal Reserve. They get to use our cash to lend it out at a tidy profit while we scrounge to make 1% on our savings.

This sounds counterintuitive, but your motivation now should be to repair your household balance sheet -- just as the banks are doing. You may have to borrow to get back on track.

While savings yields may be dismal, it's an incredibly good time to borrow money. I refinanced late last year into a 30-year fixed-rate loan at 4.9%. I think that was a lower rate than my parents paid in 1955 when they bought their first home. Mortgage rates are even lower now.

Even if you're shopping for a new or second home, mortgage rates are still appealing: 4.8% for a 30-year fixed and 4.18% for a 15-year loan. Even a home-equity loan could be considered for debt consolidation.

Need a new car? Not only are dealers offering myriad incentives, the average rate for a three-year auto loan is about 6.6%.

I'm not suggesting that you go into debt for the sake of buying something you think you need. I still advocate saving money every month rather than going into debt for a car you don't need or a home you can't afford.

My own rule is that you're not getting ahead unless you're saving. A new car and home don't matter if you don't have a cushion for the future.

Think like the banks. They’re fixing their balance sheets courtesy of, well, us. Taxpayers and regulators ensured their survival so that the global financial system would survive.

While I certainly don't believe everything is "fixed" -- the housing market is still a train wreck in many places -- savings should be part of your repair strategy. The guidelines are simple:

1. You should be saving at least 10% of your salary for retirement. Even more is better because medical expenses will be higher in the future.

2. You need at least six months' salary set aside in savings for emergencies and unemployment. Jobs are slowly trickling back yet some industries will still be shrinking.

3. Save for college and any other big-ticket items (cars, second homes, boats, etc.)

4. Any money you gain from refinancing or reducing credit-card bills should be plowed into a rainy-day fund.

5. Check and clean up your credit record. Don't spend up to the limit on your credit-card accounts. That will lower your credit score. Correct any errors in your file. Pre-qualify for any new loan you're considering before you sign the purchase contract (with a homebuyer or auto dealer).

Those who save are buying themselves rather precious: A bit of financial security. It won't stop markets from collapsing, politicians from overspending, or reduce the national debt. Yet it will ensure that you won't be a chump when the next crisis comes around.

John F. Wasik is author of The Cul-de-Sac Syndrome: Turning Around the Unsustainable American Dream.

Thursday, June 10, 2010

Aren't you tired of seeing surveys where Americans say they aren't keeping up with their financial obligations?

How about this one from TD Ameritrade: Some 57% of those surveyed said they were behind in their retirement savings.

Although TD Ameritrade's survey has suggestions for investors, many of these press releases fail to mention that there are a number of things you can do to improve your financial condition that aren't terribly complicated.

The majority of these polls are designed for folks like myself, who are often more attracted to bad news than positive developments. It's like a moth circling a streetlight. It works nearly every time, even though it's common knowledge that most Americans are hurting financially.

Midyear is a good time to take some action. Here's where you can start:

Avoid the Sucker Credit Bait.

The first and most important thing is to stop falling for the sucker bait that banks are giving us on credit.

The best credit isn't necessarily based on the lowest-rate card or the best introductory offer. If you have a no-fee card that you pay back within the grace period, the credit is pretty much free. Even better is a card with a fee that pays you back.

If you can live within your means and aim for a monthly payment that you can cover in full every month, that's the absolute best use of credit. Of course, that means spending less and avoiding discretionary purchases you can do without. Each month take a look at your bill and do a quick audit. What was on your statement that you didn't need?

Monitor Your Deductibles, Adjust Your Insurance.

With insurance, it's the biggest risks you want to cover -- home damage, autos totaled, catastrophic health costs -- not the little stuff. That means living with deductibles you can afford.My rule of thumb is having money in the bank to cover deductibles on all of my policies. In general, the higher the out-of-pocket cost you assume, the lower the premium.

My family carries a $1,000 deductible on auto and home policies. I've placed coverage with one insurer to save even more. Our second car is 15 years old, so years ago I dropped collision and comprehensive coverage, leaving only liability, which is essential.

On our major medical policy, we carry a high deductible ($5,950 this year) to keep premiums down. Because I'm self employed, I put money in a savings account to cover the out-of-pocket costs.

The other option is to put that money into a health-savings account, which is funded with tax-deductible contributions. If you don't use the money in the account for health bills, it can compound tax deferred. It's yours to keep.

With this high-deductible approach, you can cover your largest costs and save thousands. Yet this approach only works if you have sufficient savings to cover your out-of-pocket costs. On the car and home insurance, if you can live with not fixing minor storm damage or fender dents, you can save even more.

Health insurance bills, on the other hand, need to be paid. The drawback here is that by yourself you have little or no negotiating power. Find a high-deductible insurer who will "reprice" health bills that you have to pay.

That means if the health provider is within an insurer's network, they will apply a discount to your statement before you pay (for amounts under your deductible).

Also keep in mind that in addition to major medical, you'll need disability insurance and life insurance if you have dependents. You have a far greater likelihood of becoming disabled than dying during your working years. This is essential if you're self employed.

The sweetest deals I've found on disability and life are through group pricing. In many cases, I found the best prices from my college alumni association. Trade and professional groups also offer low-cost policies.

It's All About Saving.

I know how tough it is to save when you don't have money coming in the door or your monthly bills exceed your income.

Obscured in all of the dour economic news is a time-tested reality: You can always adjust your spending to your income and start saving money. Do you need cable TV? Can you cook more meals at home? Can you automatically invest more in your 401(k)?

The beauty of auditing and paring down expenses is that this process creates savings. That's money you can put into an emergency money-market fund, which will help you keep up when bad times come around and fund your own recovery plan when things perk up.

John F. Wasik is author of The Cul-de-Sac Syndrome: Turning Around the Unsustainable American Dream.

Thursday, June 3, 2010

They wanted to tell me that I needed to sign up for overdraft coverage -- something I already had. But there were some nasty twists.

If I didn't sign up for it and I went over my checking account balance on my debit card, they'd ding me $35 for each transaction.

Under my present set-up, I had a $1,000 line of credit that would cover any potential overdrafts. If I went over, I'd essentially be borrowing from the line, then paying it off plus interest within a week or so. For the handful of days I took to pay it off it didn't amount to more than a few dollars.

Here's where it gets nasty. My bank tells me that they may "approve everyday debit card transactions for you at our discretion," and charge $34 for each overdraft and returned check under their new plan.

Maybe you've received a similar letter from your bank. It's called "cost shifting." As banks have cut back on lending and tried to clean up their balance sheets, they've been hitting retail customers with new fees.

What about that federal credit card protection act that went into full effect recently?

While banks have to give you plenty of notice of new fees (on credit cards), there's no limit on what they can charge you. They're not restricted as to rate or number of fees.

Debit cards, which used to be these direct conduits to your low-cost checking account, have become productive little profit centers for banks. Some 89% of New York banks surveyed by the New York Public Interest Research Group, charged point-of-sale fees on debit cards. The charges ranged from $0.10 to $1.50 per transaction.

Why would banks charge fees on something that was previously devoid of fees? Because there's nothing in current federal law that prevents them from doing so.

Banks realize that millions of customers have shifted to debit card use and they want to profit from those transactions the same way they nick you for using out-of-network ATMs for withdrawing your own cash!

While hardly surprising, debit card fees are onerous and the last straw as big banks seek to recoup their losses from meltdown.In the case of my bank -- JPMorgan Chase (JPM) -- it's not as if the bank desperately need to impose these fees. Although I haven't noticed any transaction fees on my debit card statements, the line of credit on my account is certainly not free and I didn't originally ask for it.

To its credit, Chase was actually fairly well managed during the 2008 debacle and returned the $25 billion in Troubled Asset Relief Program funds with interest in the middle of last year. Chase CEO Jamie Dimon said the bank "didn't need" the government's bailout funds.

I'm not singling out Chase, per se. All big banks have constricted their lending and are trying to maximize their revenue now at the expense of consumers.

Still, I know I can get a better deal, and I'm going to search for one.

There are lots of options to banks. One place to look -- and one I haven't explored recently -- is a credit union. These entities aren't banks, didn't buckle during the 2008 crisis, and are owned cooperatively by their customers. Their fees and loan rates also tend to be lower than large banks. (You can find a local credit union by going to www.ncua.org.)

After a neighbor suggested I check out a local credit union, I found some surprising offers: Free online banking, competitive rates on loans, and rebates on out-of-network ATM charges. They even pay up to 3.59% on checking (my current bank pays nothing).

Picking a financial institution that meets your needs can be best accomplished by going through a brief checklist:

Lending. You can shop anywhere on the Internet for a loan or try local credit unions for the best rates.

Checking. If you automate most of your bill paying, you can find free banking services. If you keep a large balance in your account, find interest-bearing programs with no fees.

Savings. Most banks are paying awful annual rates. I'd shop around aggressively. Go to www.bankrate.com. Don't get into long-term certificates of deposit right now. When rates rise -- and they will -- you'll be stuck in a poorly paying vehicle.The days of doing all your business with one bank in town are over. If you put your bank on notice that you're taking your business elsewhere, that's the best kind of banking reform.

This was my 6/2 Minyanville.com column

John F. Wasik is author of The Cul-de-Sac Syndrome: Turning Around the Unsustainable American Dream.

About Me

I am a writer, journalist, speaker, teacher, poet and musician. For information on my latest books see www.audacityofhelp.net and www.culdesacsyndrome.com.
I am a seeker of truth. I've written 13 books (see www.johnwasik.com) and countless articles in magazines and newspapers across the world. Basically I believe in an ecocentric philosophy. All that we do is tied into the flow of the earth and cosmos. We strive to find a new prosperity that is in harmony with our personal ecology. Along those lines, economics, politics, social issues and our lifestyles should be best conducted to be kind to others and in a sustainable manner.